Life Insurance Agent Productivity and Channel Sustanability

Life Insurance Agent Productivity and Channel Sustanability
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Life insurance industry has faced many challenges in the past 5-6 years which has led to substantial decrease in productivity. Prior to 2008-09, private insurance players had more than 90% of business coming from ULIPs however after IRDA issued strict guidelines – the ULIP business was not attractive to distributors and insurers. This led agents to move to traditional products. But there was a problem. Agents were used to selling ULIPs but traditional products required them of learning new techniques and methods. During this transition many agents left this profession and many others could not sell as much.

The following graph shows the average productivity of the private insurance companies:

While the reduction is quite staggering, however one would be even more astonished if these are compared with the LIC productivity numbers. The following graph depicts it:

It would not take any expert to conclude that with such low productivity it is difficult to run a profitable channel (it is a different matter that understanding channel profitability in insurance can be a very tricky issue).

The problem does not end here. The agent turnover, frontline attrition is also high. Under given situation companies are beginning to question the sustainability of agency channel and are discussing whether to grow this channel or not.

But again the question is what choices do companies have? Bancassurance channel is available with a select few, brokers channel cannot be the core channel as the revenue can swing a lot based on the competitors’ actions as well, web model is working better for aggregators than individual insurance companies, direct selling is still unproven and corporate agents channel is slowly dying. But most importantly, insurer does not have any direct control over these channels. The only channel which can still be under insurers control is agency, all other channels are volatile. Studying a few recent distribution tie-ups would prove it (Citibank moves from Birla Sunife to Tata AIA, Indusland moves from Aviva to Birla and so on). Such movements put a big dent/push in topline in the short run. These alternate channels are worth pursuing but cannot be the core.

For a long term structural and sustainable growth insurer has to go for agency channel. In that case the only choice company has is to run it profitably and work towards it. It is a complex puzzle to solve – a function of many things like frontline attrition, training, on-boarding, motivation, product offerings, sales and servicing support etc.

But one must understand that no agent joins this business to fail. They join because the career they are shown is attractive and they want to work towards it.In the past few months we have met many intermediaries to understand the issues they face. At Arythmancy, we are trying towards building solutions to address these issues. Our first offering ‘InGenious’ is developed with this objective. We strongly believe that the overall agent inactivity ratio would substantially drop with proper training and support through sales tools. ‘InGenious’ solves part of the problem and for the rest we want to work with the insurer and build solutions around it.

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